ECN Capital Corp

TSX:ECN

Thank you for standing by. This is the conference operator. Welcome to the ECN Capital First Quarter 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions]

I would now like to turn the meeting over to Katherine Moradiellos, Vice President of Finance and Investor Relations. Please go ahead, Katherine.

Thank you, Jen. Good afternoon, everyone, and thank you all for joining this call. Joining us today on the call are Steven Hudson, Chief Executive Officer of ECN; Jackie Weber, Chief Financial Officer of ECN; Lance Hull, President of Triad Financial; Matt Heidelberg, Chief Operating Officer of Triad Financial; James Barry, Chief Financial Officer of Triad; Hans Kraaz, Founder & CEO of IFG; Mike Opdahl, President of Source One.

A news release summarizing these results was issued this afternoon, and the financial statements and MD&A for the 3-month period ended March 31, 2025, have been filed with SEDAR+. These documents are available on our website at www.ecncapitalcorp.com. Presentation slides to be referenced during the call are accessible in the webcast as well as in PDF format under the presentation section of the company's website.

Before we begin, I want to remind our listeners that some of the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risk and uncertainties. I will refer you to the cautionary statement section of the MD&A for a description of such risk, uncertainties and assumptions. Although management believes that the expectations reflected in these statements are reasonable, we can obviously give no assurance that the expectations of any forward-looking statements will prove to be correct.

You should note that the company's earnings release, financial statements, MD&A, and today's call include references to non-IFRS measures, which we believe help to present the company and its operations in ways that are useful to investors. A reconciliation of these non-IFRS measures to IFRS measures can be found in our MD&A. All figures are presented in U.S. dollars unless explicitly noted.

With these remarks complete, I will now turn the call over to Steve Hudson, CEO.

Thank you. Good afternoon. Before I begin my personal -- sorry, my prepared remarks, let me start by saying that the first quarter clearly demonstrates how robust and resilient our business is. We're happy to report our first quarter earnings of $0.03 per share, which is the high end of our guidance. Triad's adjusted operating income was at just over $13 million, which represents a 44% increase year-over-year. High-margin channel originations were up almost 44% and in April, were up almost 68%.

We're pleased to welcome JPMorgan and New York Life to Triad's family of flow partners. On RV and Marine, adjusted -- we're reporting adjusted operating income of $1.2 million, and we're pleased to announce the extension of our partnership with Monroe Capital to include RV flow. James?

Thank you, Steve. Turning to Slide 8. Triad is pleased to report adjusted operating income of $13.1 million in Q1, an increase of 44% year-over-year. As discussed during our Q4 update, public company overhead costs and interest expense has been allocated to the business segments beginning in Q1. I would also point out that adjusted EBITDA is coincidentally flat at $21.7 million compared to Q1 2024.

Origination margin of 7% was ahead of guidance of 6.5%, reflecting a higher weighting of core channel originations in our hedging program, which proved effective through an environment of elevated interest rate volatility in late Q4 2024 and into Q1 2025.

Although managed assets grew approximately 12% to $5.8 billion, Triad's servicing yield declined from roughly 95 basis points in Q4 to 84 basis points due to the quarter-over-quarter reduction in loan sales consistent with seasonality in our business. We reiterate our full year guidance of approximately 90 basis points in full year 2025.

Triad saw growth in all 3 of our businesses, and our commercial and servicing business units comprised 41% of revenues in Q1.

And with that, I'll turn it to Lance Hull to review our expanded funding relationships.

Thank you, James. If you please turn to Page 9. We're fortunate to have the strong relationships with Blackstone and Carlyle and our extensive network of banks and credit unions. As we increase our market share, it's important to grow with them and to add new partners to further diversify our funding capacity. With that in mind, we're excited to announce the continued expansion of our institutional investor funding capacity.

I want to thank Matt Heidelberg and his team for the work they put in over the last few months to secure these 2 new forward flow purchase agreements, one with JPMorgan in April and just this week, another with New York Life. These are highly reputable partners that will increase our ability to better serve the market and add real value to Triad in the years to come. And just to add, because both of these new agreements include all loan products, we now have the added capacity necessary to meet the growing demand for our loans across all eligible credit profiles.

If you please turn over to Page 10. Retail originations grew sharply in Q1, and we're now well ahead of plan on the year. I want to point out 3 primary drivers for this increase. First, our activity within the Champion Financing JV is much stronger than forecast. We are grateful for this partnership and continue to work with Champion to bring value to our mutual customers.

Second, we're now executing on the structure and process improvements that we have put in place over the last 18 months. This has led to a 15% growth in our look to book compared to Q1 of 2024. And thirdly, we have seen a return to normal in general activity following the impacts of the devastating hurricanes in the latter part of 2024.

I would also add that to date, tariff impacts have been minimal. When looking at our approval pipeline, our average loan amount is holding very steady. Additionally, for further stability, some of the industry's manufacturers are beginning to introduce the inclusion of a small price protection line item in their home invoices to hedge against potential future tariff-related price increases.

Turning on to Page 11. Q1 was our largest first quarter of originations in the company history and capped by the record set in March where we funded more than $110 million in Chattel alone. While we're excited about the growth during Q1, we're equally excited about the momentum that began later in the quarter and continued through April and now into May. Chattel originations in April exceeded the March record and were up 67% year-over-year. Core applications, approvals and originations remain above plan and strong momentum is carrying into Q2.

And now I'll turn it over to Matt Heidelberg to share some performance updates.

Thank you, Lance. Starting on Slide 12. Credit performance remains strong at Triad. Delinquencies have seasonally moved lower year-to-date, as you can see in the graph on the upper right corner of the slide. On the bottom half of the slide, managed assets continue to grow with originations and net charge-offs remain consistently low.

Moving to Slide 13. You can see commercial balances have grown to $455 million, which consists of roughly 70% floor plan balances and 30% rental. We've seen that opening a rental relationship with the manufactured home community is helping to drive both additional floor plan and retail business. This is confirmation that having a full product menu is both broadening and strengthening Triad's relationships with its partners.

For a quick update on Champion Financing on Slide 14, the Champion Financing joint venture is tracking ahead of plan year-to-date. Retailers are utilizing the floor plan offering to acquire homes at the right mix and price point for their customers, while the retail loan products provide financing consumers need to complete their home purchase. Champion Homes has been a wonderful partner to work with, and we look forward to continuing our success together.

Moving to Slide 15. We wanted to take a moment to remind you that the manufactured housing industry has been resilient during multiple economic cycles. The graph on the left shows industry shipments relative to treasury yields over time. The graph on the right shows the industry shipments relative to consumer sentiment. The lack of correlation for both supports our view that there is an affordable housing need despite the sentiment or rate environment. And we believe that manufactured housing is the leading solution to assist with this need.

Finally, on Slide 16, this table summarizes our historical quarterly originations.

And with that, I'll turn it back to Steve.

Thank you. Turning to RV and Marine. Our first quarter adjusted operating income pre-tax was $1.2 million, and our originations of $205 million were up 24%. However, we've started the second quarter with a slightly different picture with headwinds and a temporary slowdown taking place in the second quarter and likely part of the third quarter. We are seeing a forecast to recovery in Q4. We are implementing a strategy -- we are implementing take share strategies in this temporary showdown, just like Hans did so effectively at IFG where he was able to grow share and volume during a period of slowness.

Turning to the next page. As I mentioned earlier, I'm happy to welcome Monroe Capital into the RV family. They are already part of the Triad family in funding rental paper. This completion of these institutional investor arrangement is the end of our transition from credit unions to institutional investment, which is consistent with our strategy. Hans?

Thanks, Steve. Turning to Slide 20. Despite the challenging Marine market, especially the market we focused on, which is used yachts and cruisers, we continue to gain market share and beat our competition. According to InfoLink Technologies, through February 2025, yacht and cruiser sales were down approximately 4%. New powerboat retail sales are down 7.4% and wholesale shipments are down 13%. However, at IFG, originations were up 22% year-over-year. That's in the first quarter. March was up an astounding 43%. We see this momentum continuing in April with originations up 24%.

We're doing this incredible work by leveraging our long-term relationships with banks, brokers and dealers. Our old-fashioned style of knocking on doors and seeing our clients face-to-face, sprinkled in with some new technology, is paying off as we continue to win dealers and brokers on a daily basis. Last year, we brought over a large sales team. They exceeded $25 million in originations in the first quarter alone. We've done this while maintaining expenses in line with our plan.

Many of people have brought up tariff issues and how it will affect IFG's business. At IFG, 70% of our business is used boats. This fares very well for us because, number one, there are no tariffs on used boats. Number two, used boats are generally less expensive than new boats. In a tough market, that's where the consumer is looking to buy their boat. Number three, the major captive lenders are not equipped to handle used person-to-person transactions. This is where IFG shines, and this has always been our expertise.

With that, I'll turn it over.

Thank you, Hans, and congratulations on another great quarter.

Good afternoon, everyone. Let's turn to Slide 21. Q1 originations were up 28%, our largest first quarter ever, and this momentum carried over to April as we finished up over 40% year-over-year.

Coming into our prime season, we have over $190 million in approved applications in our pipeline and are well positioned for continued growth this quarter. We continue to focus on maximizing efficiencies across all RV and Marine with operating expenses in line with plan. The IFG and bank initiatives we began last summer are beginning to scale, approaching 10% of our April originations.

Despite Source One's significant improvements this year, continued consumer uncertainty due to macroeconomic pressures are affecting our industries. Dealership sales continue to struggle with year-to-date towable registrations down 12%. And as Hans pointed out, Marine sales and shipments are experiencing similar slowdowns. Despite these headwinds, Source One is gaining market share, and we are well prepared to navigate through continued volatility.

With that, I'll turn it over to Jackie.

Thank you, Mike. Turning to Page 24 for our consolidated operating highlights. We closed our first quarter of 2025 with adjusted operating income increasing year-over-year to $11.4 million, up from $1.4 million. Adjusted net income to common shareholders was $7.2 million or $0.03 per share, at the high end of our guidance range of $0.01 to $0.03 per share.

Turning to Page 25. Our finance asset and debt levels remain consistent with the end of 2024. During the quarter, we completed a $58 million issuance of convertible debentures and used the proceeds to redeem our 2025 debentures. The issuance secures term liquidity and was net neutral to our total debt.

Turning to Page 26. Total adjusted revenue increased to $54.9 million, which excludes the impact of a non-cash gain of $1.8 million in the current period, resulting from a fair value adjustment related to the convertible debenture liability. The increase in revenue compared to the prior year quarter was driven by higher originations revenue and higher servicing revenue at both business segments.

Interest income and interest expense each decreased primarily due to lower on-balance sheet finance assets. Operating expenses increased modestly year-over-year to $29.4 million. Adjusted EBITDA increased to $25.5 million and adjusted operating income increased to $11.4 million.

On Page 27, as previously announced with our 2025 guidance, corporate operating expenses have been allocated to the business segments beginning in the first quarter. As part of our corporate simplification, we recognized a onetime charge of $6.7 million or $5 million after tax in the quarter. Cost savings related to the simplification were approximately $1 million in the quarter and are expected to be approximately $5 million on an annualized basis.

Lastly, on Page 28, held-for trading finance assets are down modestly from Q4 at $202 million.

I'll turn back to Steve for closing remarks.

Thanks, Jackie. In closing, we are reaffirming our 2025 guidance of $0.19 to $0.25. ECN, as I said, is resilient and robust. But I'd like you to take one important message away from today's call as we shift to a more aggressive posture in the remaining quarter of 2025.

ECN is blessed with excess funding exceeding $0.5 billion. We are in a very good place. We played some defense in the past years by building robust and resilient systems in all of our business to position us for growth. Now that that work is complete, we are going on the offense. We will take advantage of this excess funding capacity with a warrior-like sales culture to supercharge our growth. That's our vision for ECN.

Operator, we're happy to take questions.

[Operator Instructions] And our first question today will come from Nick Priebe with CIBC Capital Markets.

Just want to start with the question at Triad. It looks like originations are trending kind of nicely through the quarter and into April. I think of originations reflecting the total volume of funded loans, which would be the product of orders that would have been placed a few months prior. I understand that originations were particularly strong in April. Just wondering how approvals will be trending subsequent to quarter end through April and May. Like are you still seeing pretty strong double-digit growth there?

Yes. Thanks, Nick. This is Lance. And yes, we are. I just looked this morning through this period of May. We're up 25% year-over-year in approvals. And throughout the month of April, we were up more than 30% year-over-year. So we're seeing continued strong approval growth, yes.

And I'd add to that, Lance. You're seeing strong approval growth and a better look-to-book ratio.

Absolutely.

Okay. That's good to hear. And then higher-margin Chattel loans constituted nearly 90% of originations in Q1. Do you have visibility on how the product mix is going to evolve through the balance of the year? Like is that a realistic sort of composition for the balance of the year?

I think we'll continue to see strong Chattel growth, but I also know that we're rebuilding our land home products and our land secured products overall. So I think it will tilt a little bit more towards the land secured products later in the year, but Chattel will remain strong, a stronger portion than it probably did most of last year.

Got it. Okay. And then just on the funding side, you've got the new funding partners you called out JPMorgan and New York Life. How would the gain on sale margins from those new partners kind of land on the continuum? Like would you expect those to be just generally comparable to any other institutional funding partners?

Yes. This is James. They're very consistent with prior agreements with a little bit more flexibility in what types of loans we can flow through. So it should be supportive to our forward originations look. But overall, we still stand behind our 6.5% origination margin yield for the year.

And the last one, like, I would make is that the New York Life -- all these are important relationships. The New York Life is our first direct Lifeco relationship. Our asset manager partners are important to us, but going direct to Lifeco is part of our strategy.

Your next question will come from Jaeme Gloyn with National Bank.

Just wanted to clarify on the new funding partners and the ability to do more silver and bronze. Are those silver and bronze programs, are they higher margin? Just to refresh my memory on that. And then how is the demand for those types of products? Are they -- are you looking to -- would you potentially see an increase in the share of silver and bronze now that you have these partners in place as we go forward?

Yes. So as we've previously discussed, being able to originate lower-tier credit is more representative of the MH market as a whole. So it is supportive of our forward originations look. And I think, generally speaking, the margin between gold, silver and bronze is relatively consistent. There isn't too much variability within how they're priced.

Understood. Just a quick one on the corporate simplification. Just remind me what some of those costs might have been that were flowing through this quarter.

Sure. So the corporate simplification is our initiative where we're streamlining corporate back-office functions in with Triad. The bulk of the cost is personnel reductions. We've eliminated, I think it's around 24 positions as part of the program.

We'll move next to Stephen Boland with Raymond James.

Just a numbers question. And this number jumps around a little bit, but the retained servicing rights, which as I know is a non-cash, and I know it's a discounted number, big kind of movement, I think, this quarter. I wonder if you could just like talk about what assumptions did change. And does that flow into income at all? I'm just trying to understand that again.

I'll start out here and James can weigh in on the Triad side. So servicing as a whole, if you're looking at the year-over-year increase, it's not just from Triad. It's also RV and Marine contributing. On the RV and Marine side, we did the majority interest acquisition at Paramount, and we've retained servicing under the forward flows at Source One as well. So you have about half of the increase coming from that side of the business. And then on the Triad side, James can speak further, but it does move around a little bit based on the assumptions and how many assets we've sold in the current period.

Yes. I think the only thing I would add is looking at Q1 specifically, we sold through about $40 million fewer loans, consistent with slightly lower originations and modest growth in HFT. Of note, looking forward into April, HFT has actually reduced slightly from March. So you'll kind of see kind of a normalized servicing yield of 90 basis points on the year at Triad.

Okay. Does that change it -- sorry, again, like it was an accountant many years ago. But does that change, does it impact the income? Like is it going into the service income that -- like is it an offset or a positive?

Yes, it does hit servicing income. That's correct.

Second question, just -- I know you just talked about the restructuring, the costs. What is the timing of that, that merger between Triad and the corporate parent now? I think -- I don't know, I can't remember the original timing, but when will that actually be merged officially?

The process is underway. You're correct. We did announce it back when we put our guidance out in the later part of last year. We've made significant headcount reductions. As I mentioned, we've had $1 million of cost savings already in Q1. Our primary focus so far has really been on headcount and personnel costs. We haven't formally merged the physical locations as of yet.

Okay. And sorry, there was one other thing. I guess, Steve, on the last call, you mentioned there were some delays in Q4 that would have been -- was worth some income. Like when I just go back and look at the transcript way from Q4, like was that part of the reason you hit the high end of guidance, like that Q4 stuff got pushed into Q1?

This is Lance again. So on the Triad side, yes, we did get some lift in Q1 from the business that we failed to pull through in Q4 of last year. That's one of the reasons that we saw the large increase. We're also seeing increases for other reasons. But yes, we did see a pickup. And we're kind of back to return to normal from the storm interrupted series that we had in Q4.

[Operator Instructions] And we'll take our next question from Tom MacKinnon with BMO Capital.

Just following on Steve's question here. I think you talked about $50 million to $75 million in Triad originations that are going to be deferred into the first half of 2025, at least that was mentioned in the last call. Do you know if you picked up all of those in the first quarter?

Yes, Tom, I would say that you got a chunk of it in March as you've seen that significant increase. You've seen the April numbers. Lance spoke to getting a chunk of it. But somewhere in that $50 million to $60 million is flowing in between March and April. But when you look at the approval pipeline, it indicates it's going to be strong through Q2 and Q3. The business is -- the affordability thesis of this business is proving to be correct.

And then I think you also mentioned $75 million of RV and Marine asset sales were pushed into the first quarter into a new flow vehicle. Did that all come through in the first quarter as well?

Tom, it's Jackie. We did complete a pool sale as expected at Source One under the new facility with Monroe. It wasn't the full $70 million, but it did contribute to Q1 results.

Okay. And then, Steve, you had suggested that almost $0.03 of earnings in the first quarter was -- or in the fourth quarter was deferred and would work its way into the first half of 2025. Can -- how much of -- can you estimate how much of that $0.03 may have been -- I think it was $0.015 in each one of the segments. Can you guess any other lift you may have got?

Sorry, Tom, I cut you off. I think we're on track for that. We've had a good solid first quarter. A small portion come that. You'll see some of that in the second quarter as well in Q3. I think that Triad is going to perform exceedingly well in 2025 as is IFG. We might see some softness in Source One, but we're addressing that by adding proven sales leadership to Mike's team and the sales team. I see these temporary turndowns as an opportunity to take share as Hans has successfully showed us at IFG. To answer your question, you'll see that recovery over this quarter and the next 2 quarters.

And would tariffs have any impact on Triad's business?

Yes. I mentioned in the earlier slide. This is Lance again. I'm sorry. We're not seeing the impacts at all at this point. Our average -- if you look at our approval pipeline now, our average loan amount is holding very, very steady. And then I mentioned that some of the manufacturers are beginning to see some risk. So they've added a line item to their invoices as a price protection line item. So that way, the retailer and the consumer get a little better look at what their home might be 2 or 3 months from now if it comes offline then. But again, those are fairly small amounts now too, looking at 3% to 4%, maybe 5%. So we're not feeling much impact at all right now and don't anticipate any large impacts at all.

[Operator Instruction] And we have a follow-up from Jaeme Gloyn with National Bank.

Just wanted to, I guess, kind of reconcile the growth in Triad. So the Chattel origination is obviously doing very well. I see total approvals up 19%, but originations on a whole up 10%. The guidance would suggest originations for the full year are going to grow at like 35% or something around that range. Can you hit guidance with just Chattel originations or the bulk coming from Chattel originations? Or do you need the commercial side of the business to pick up as well in the back half to be able to hit that full year guidance?

Yes. So Q1 was marked by strong growth in Chattel, and we see that continuing. We do believe that our land secured offering and also our community business will pick up towards the second half of the year as well. So we still feel comfortable with our guidance range between $1.7 billion and $1.9 billion on the year.

As there are no further questions registered, this concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a great day.